When a production outfit operates on a large scale, they have advantages over the smaller ones. These categories of economic entity enjoy lower costs per unit of the total cost of production. The reason behind this is that the production cost is spread over the large units of products/services produced/rendered. By this, the production outfit is said to have enjoyed economies of scale. Depending on whether the benefits can be controlled within or outside the production organization, economies of scale are of two types –internal and external economies. From the internal perspective, the producer enjoys economies of scale when it buys its inputs in bulk such that it increases its savings and profit. Likewise, increase in efficiency due to upgrade in technology of production can also make a production outfit gain economies of scale. On the other hand, external economies of scale may come from enjoying. Regardless of what is produced, this principle applies to all production endeavors.
With respects to agriculture, farmers produce crops and livestock from the use of various relevant inputs. Farming can be done either at subsistence or commercial levels. At the subsistence level where farmers produce basically for their households, market supply is small, if it exists at all. However, the commercial farmers produce with the view to supplying the market. In developing countries of the world, small scale farming is predominant. Farmers own and manage limited farming resources. They operate on small and scattered farm locations with little application of productivity-enhancing technologies. Hence, they remain less commercial, make less profit and live abject poverty. Among other things that could be done to improve productivity among these small holder farmers is cluster farming. With cluster farming, farmers cooperate to establish their farms in the same location to form a farming hub and enjoy a lot of economic benefits. The benefits of this clustering include but not limited to:
- Easy targeting of agricultural resources by governments and policy makers.
- Increase in productivity and commercialization of farming.
- Easy inputs and outputs market access.
- Access to information.
- Increase in profitability.
- More income to farmers.
- Increase in food availability.
- Agro-export trading.
With these benefits, the entire economy grows and develops with the possibility of reduction in crime rate. As the economy attains food self-sufficiency, export dealings with other countries can foster international ties for further development.